The LED controller, are separate from the encoder,
Then why does this device make it seem like they aren't separate? This is where the confusion stems from...
https://www.ultimarc.com/control-interfaces/i-pacs/i-pac-ultimate-i-o/
In the case of that Ult. I/O board (and the
LED-Wiz+GP), the encoder and LED controller are on one PCB and they share the USB connection,
but the software configuration and wiring you need to do are the same as if they were on separate PCBs.
For the encoder part of the PCB, you still have to configure the front end, games, emulators, and maybe the encoder (you may not want to use some of the MAME default "modifier" keystrokes

)
plus you have to wire the switches/spinner/trackball to the encoder part of the board as you would with a standalone encoder like an IPac2 or GP-Wiz40.
For the LED controller part of the PCB, you still have to configure the front end and LEDBlinky
plus you have to wire the LEDs to the LED controller part of the board as you would with a standalone LED Controller like a PacLED64 or an
LED-Wiz.
Like Arzoo suggested, you may want to start by getting the front end, games, and encoder part up and running
before you work on the LEDs and LEDBlinky part.
Scott